To the everyday onlooker, Saudi Arabia may appear like an emboldened nation that is asserting itself. They have been taking on Iran, battling rebels in Yemen, likely to invade Syria, and if some gossip is to be considered, they are presently attempting to obtain nuclear missiles from Pakistan. Nevertheless, these are not the behavior of a stable nation that is asserting its prominence in the region. These are the flailing death throes of a nation that is having difficulties hanging on.
Ever since global oil prices began to plummet, Saudi Arabia just has not been the same. That’s no surprise. Since prices dropped, other oil rich nations have been hurting too. Russia’s economy has been on the ropes, Canada is rapidly declining into a recession, and Venezuela is on the brink of total collapse. Nevertheless, there most likely is not any nation on Earth that is more dependent on oil than Saudi Arabia. If anyone is going to be ruined by low oil prices, it’s the Saudis.
The heart of the matter is that this country is running out of cash. It does not look like it at first glimpse. They have only lately began to dip into their massive savings, and their debt to GDP ratio is remarkably reduced. Nevertheless, they are hemorrhaging cash at an alarming rate. They have been flooding the market with cheap oil to drown out their competition (a dangerous gambit for a government that gets 80% of its revenue from oil) , and they have been fighting several expensive proxy wars with Iran, which are not going so well. The circumstance is so terrible that the IMF expects them to run out of money within 5 years.
For most countries this would not be such a big deal. They would just go into debt and kick the can down the road until their financial system crumbled after many years. But the Saudi’s can not do that. Their government and their society is organized in such a way that they can not maintain anything with debt. The explanation why is that they are not a traditional nation-state.
In fact, Saudi Arabia is no state at all. There are two ways to describe it: as a political enterprise with a clever but ultimately unsustainable business model, or so corrupt as to resemble in its functioning a vertically and horizontally integrated criminal organization. Either way, it can’t last. It’s past timeU.S.decision-makers began planning for the collapse of the Saudi kingdom.
In recent conversations with military and other government personnel, we were startled at how startled they seemed at this prospect. Here’s the analysis they should be working through.
Understood one way, the Saudi king is CEO of a family business that converts oil into payoffs that buy political loyalty. They take two forms: cash handouts or commercial concessions for the increasingly numerous scions of the royal clan, and a modicum of public goods and employment opportunities for commoners.
Basically, Saudi Arabia runs on institutionalized bribery. They require cold hard cash to keep the population in line, to maintain the ever-growing royal family rich and happy, and to make sure everybody is doing their job. It’s not like what you observe in most Western nations, where much of the population has a missing sense of civic duty. This system requires cash, and can’t endure on IOUs.
The elites in this society require a life of perpetual luxury, and government handouts are the only thing keeping the oppressed masses from rebelling. Once they run out of cash, everything will fall apart from the bottom up.
But the financial situation isn’t the only issue with the Saudi kingdom. Much of their budget is being burned up from combating their war in Yemen, which they are losing terribly. Many of their Blackwater Mercenaries were wiped out in a missile attack last month, the Yemeni rebels captured one of their military bases two weeks ago (within Saudi territory no less), and last week Yemeni forces was able to capture over a hundred Saudi soldiers.
This is a regime that rules with fear and oppression. How can they do that when their own military can not defeat an insurgency in their own backyard? When the handouts and bribes grind to a stop, and their population is sick and tired of being completely outclassed by the Saudi family, how long do you assume it will take for them to disobey?
And on top of all that, Saudi Arabia is confronted with a severe water meltdown. They are heavily reliant on underground aquifers that are not renewable, and they utilize more water per person than in many Western nations (actually, twice as much as the average person in the EU). They could run out of water in as little as 13 years. This has motivated the Saudi regime to begin taxing water for the first time, partly because of the water problems, and partly because of falling oil profits.
As you can discover, there are a lot of existential threats bearing down on Saudi Arabia. Their proxy wars with Iran are bleeding their coffers dry just as oil profits have reached record lows, their oppressed population is stressed, they can not meet the demands of their gluttonous elites, and they are facing a nationwide environmental disaster that could grind everything to a total stand still.
In a nutshell, one of America’s strongest allies in the Middle East and the linchpin of the petrodollar, is confronting a complete collapse, and it may occur within a decade. This could lead to chaos in the Middle East, and would have massive ramifications for the global economy. And at the end of the day, there really is not anything that can be done to stop it.